Does conventional wisdom make economic sense? In many cases, it doesn't. This blog will question the economic efficiency and market viability of popular "solutions" to today's problems. Copyright 2011.

Friday, July 11, 2008

Green Losers

The purpose of this blog has been to use rational thinking and basic economic principles to evaluate the more popular solutions to the "green crisis." While I promote conservation, new technology, and a clean environment, they all have to be approached with an understanding of costs. When the need to evaluate a position no longer requires empirical data, it is going to be a bad decision.

Business Week reported in the June 30 print edition that companies who signed up for the US EPA's Climate Leaders Initiative lost, on average, 0.9% of its share price in two days, "...more than it would have from normal market factors." This was the result of research done by two Dartmouth College professors, Karen Fisher-Vanden and Karin Thorburn.

The studies goes on to point out that:

Companies in carbon-heavy industries such as utilities, though, don't take as much of a hit. In those cases, ...investors view participation as a preemptive move against all but certain regulations."

What this article points out is that the market doesn't view cutting greenhouse gases as good way to spend the shareholders' money, at least in some industries. Rational investors seem to have figured this out, change when necessary, but not before.